The Entrepreneur's Identity Crisis: How to Find a Purpose and Execute It

Whether they're entirely original ventures or new divisions in existing companies, many startups lack awareness of who they are, what they want to do, or how they'll do it. Here's a framework to help them.

One of the confusing things to entrepreneurs, investors and educators
is the relationship between customer development/business-model
design and business planning/execution. When does a new venture focus on customer development and business models? And when do business planning and execution come into play?

Here's an attempt to put this all in context.

SEARCH VS. EXECUTION

I was in Washington D.C. last week presenting at the ARPA-E conference. I spent the next day working with the National Science Foundation on the Innovation Corps,
and talking to congressional staffs about how entrepreneurial
educational programs can reshape our economy.

One of the issues that came up is whether the new lexicon of entrepreneurial ideas -- Customer Development, Business Model Design, Lean, Lean LaunchPad
class, etc. -- replace all the tools and classes that are currently
being taught in entrepreneurship curriculums and business schools. I
was a bit surprised since most of what I've been advocating is
complementary to existing courses. However, I realize I've primarily
written about business model design and customer development. Given that
I'm speaking this month in front of entrepreneurship educators at the NCIIA conference, I thought I should put it in context before they throw tomatoes at me.

If your business model is unknown -- that is just a set of untested hypotheses -- you are a startup searching for a repeatable business model. Once your business model (market, customers, features, channels, pricing, Get/Keep/Grow strategy, etc.) is known, you will be executing it. Search versus execution is what differentiates a new venture from an existing business unit.

1) Strategy. The primary objective of a startup is to validate its business model hypotheses (and iterate and pivot until it does.) Then it moves into execution mode. It's at this point the business needs an operating plan, financial forecasts and other well-understood management tools.

2) Process. The processes used to organize and implement the search for the business model are Customer Developmentand Agile Development.
A search for a business model can be in any new business - in a brand
new startup new or in a new division of an existing company.

In search, you want a process designed to be dynamic, so you work
with a rough business model description knowing it will change. The
model changes because startups use customer development to run
experiments to test the hypotheses that make up the model. And most of
the time these experiments fail. Search embraces failure as a natural part of the startup process. Unlike existing companies that fire executives when they fail to match a plan, we keep the founders and changethe model.

Once a company has found a business model (it knows its market,
customers, product/service, channel, pricing, etc.), the organization
moves from search to execution.

The product execution process - managing the lifecycle of existing
products and the launch of follow-on products - is the job of the product management and engineering organizations. It results in a linear process where you make a plan and refine it into detail. The more granularity you add to a plan, the better people can execute it: a Business Requirement document (BRD) leads to a Market Requirements Document (MRD) and then gets handed off to engineering as a Functional Specifications Document (FSD) implemented via Agile or Waterfall development.

3) Organization. Searching for a business model requires a different organization than the one used to execute a plan. Searching requires the company to be organized around a customer development team led by the founders.In
contrast, execution, (which follows search) requires the company to be
organized by function (product management, sales, marketing, business
development, etc.)

Companies in execution suffer from a "fear of failure culture",
(quite understandable since they were hired to execute a known job
spec.) Startups with Customer Development Teams have a "learning and
discovery" culture for search. The fear of making a move before the last
detail is nailed down is one of the biggest problems existing companies
have when they need to learn how to search.

The idea of not
having a functional organization until the organization has found a
proven business model is one of the hardest things for new startups to
grasp. There are no sales, marketing or business development departments when you are searching for a business model.
If you've organized your startup with those departments, you are not
really doing customer development. (It's like trying to implement a
startup using Waterfall engineering.)

4) Education. Entrepreneurship curriculums are only a few decades old. First
taught as electives and now part of core business school curriculums,
the field is still struggling to escape from the bounds of the business
plan-centric view that startups are "smaller versions of a large
company." VC's who've watched as no startup business plan survived first contact with customers
continue to insist that startups write business plans as the price of
entry to venture funding. Even as many of the best VCs understand that
the business 'planning' and not the 'plan' itself, are what is important.

The trouble is that over time, this key message has gotten lost. As
business school professors, many of whom lack venture experience,
studied how VCs made decisions, they observed the apparently central
role of the business plan and proceeded to make the plan [not the planning],
the central framework for teaching entrepreneurship. As new generations
of VCs with MBA's came into the business, they compounded the
problem ("that's how we always done it" or "that's what I learned (or
the senior partners learned) in business school.")

Entrepreneurship educators have realized that plan-centric curriculum
may get by for teaching incremental innovation but they're not turning
out students prepared for the realities of building new ventures.
Educators are now beginning to build their own E-School curriculum with a new class of management
tools built around "search and discovery." Business Model
Design, Product/Service Development, Customer Development, Startup
Team-Building, Entrepreneurial Finance, Marketing, Founder Transition,
etc. all provide the startup equivalent of the management tools MBAs
learn for execution.

5) Instructional Strategy. Entrepreneurial education is also changing the focus of the class experience from case method
to hands-on experience. Invented at Harvard, the case method approach
assumes that knowledge is gained when students actively participate in a
discussion of a situation that may be faced by decision makers.

The search for a repeatable business model for a new product or
service is not a predictable pattern. An entrepreneur must start with
the belief that all her assumptions are simply hypotheses that will
undoubtedly be challenged by what she learns from customers. Analyzing a
case in the classroom removed from the realities of chaos and
conflicting customer responses adds little to an entrepreneur's
knowledge. Cases can't be replicated because the world of a startup is too
chaotic and complicated. The case method is the antithesis of how
entrepreneurs build startups -- it teaches pattern recognition tools for
the wrong patterns -- and therefore has limited value as an
entrepreneurship teaching tool.

The replacement for cases are not better cases written for startups. Instead, it would be business model design -- using the business model canvas as a way to 1) capture and visualize the evolution ofbusiness learning in a company, and 2) see what patterns match real world iterations and pivots. It is a tool that better matches the real-world search for the business model.

An entrepreneurial curriculum obviously will have some core classes
based on theory, lecture and mentorship. There's embarrassingly little
research on entrepreneurship education and outcomes, but we do know that
students learn best when they can connect with the material in a
hands-on way - personally making the mistakes and learning from them
directly.

As much as possible the emphasis ought to be on experiential,
learner-centric and inquiry-based classes that help to develop the
mindset, reflexes, agility and resilience an entrepreneur needs to
search for certainty in a chaotic world.

Steve Blank is a retired Silicon Valley serial entrepreneur-turned-educator and the author of The Four Steps to the Epiphany. He writes regularly at www.steveblank.com.
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Steve Blank is a retired serial entrepreneur-turned-educator who is changing how startups are built and how entrepreneurship is being taught. He created the Customer Development methodology that launched the lean startup movement, and wrote about the process in his first book, The Four Steps to the Epiphany. His second book, The Startup Owner's Manual, is a step-by-step guide to building a successful company. Blank teaches the Customer Development methodology in his Lean LaunchPad classes at Stanford University, U.C. Berkeley, Columbia University and the National Science Foundation. He writes regularly about entrepreneurship at www.steveblank.com.